Sunday, July 25, 2010

Health Insurance Reform Update

BREAKING NEWS! As a result of the new mandate prohibiting the exclusion or denial of health insurance for children under the age of 19 due to pre-existing medical conditions, some big insurers have decided to stop writing new coverage on kids. Employer sponsored plans are not affected but Blue Cross, Blue Shield, Aetna, and Golden Rule (United Healthcare) in Florida and some local insurers in Oklahoma have already notified their insurance commissioners that they will stop issuing individual policies for children. It should be noted that they will not cancel policies already issued but will not write new policies.

This is definitely an unintended consequence of the healthcare reform law but raises plausible concerns with the law. If insurers are required to accept all children, even those with serious medical issues, what would prevent parents from waiting until a child gets sick to enroll them, creating adverse selection, long a bane of insurance companies. Some insurers are proposing an open enrollment period for the guaranteed children's coverage where parents could only get guaranteed coverage during a designated time each year.

In my opinion, this seems like a fairly reasonable approach and would limit misuse of the healthcare system. Further discussion of this matter will be necessary as the guaranteed coverage is extended to adults in 2014. Although the federal law proposes a fine or penalty for individuals who do not purchase health insurance either privately or through the exchanges to be established, the same misuse could occur whereby an individual chooses to pay the fine until he/she becomes ill and needs health insurance. As long as the fine is less than the insurance premiums this will be yet another unintended consequence of healthcare reform that could threaten the solvency of big and small insurers and cause many to exit the market.

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